2025 (7) TMI 17 - AT - Income Tax

Rejecting the application for grant of registration u/s 12A and cancelling the provisional registration granted earlier u/s 12AB - non-compliance to the notice issued by the Ld. CIT(E) asking for certain details - It is the submission of assessee that due to mistake on the part of the employee of the trust the details could not be furnished and that given an opportunity the assessee is in a position to substantiate its case by filing all the relevant details before the Ld. CIT(E) HELD THAT - Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the CIT(E) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details to his satisfaction and decide the issue as per fact and law. Assessee is also hereby directed to submit the details as called for by the CIT(E) on the appointed date without seeking any adjournment under any pretext - The grounds raised by the assessee are accordingly allowed for statistical purposes.

Summary

The core legal questions considered by the Tribunal in this appeal include:

1. Whether the rejection of the application for registration under section 12A and cancellation of provisional registration under section 12AB of the Income Tax Act, 1961 was justified on grounds of non-compliance with statutory notices and failure to furnish requisite details by the assessee.

2. Whether the assessee, being a religious trust engaged exclusively in religious activities, was entitled to registration under clause (iii) of section 12A(1)(ac) despite the alleged non-compliance.

3. Whether the provisional registration granted under section 12AB could be cancelled on the basis that the trust's activities commenced before the date of provisional registration, thereby rendering the provisions of section 12A(1)(ac)(vi)(A) inapplicable.

4. Whether, in the interest of justice, the matter should be restored to the file of the CIT(Exemption) for reconsideration, allowing the assessee a final opportunity to comply and substantiate its case.

Issue-wise Detailed Analysis

Issue 1: Justification for rejection of registration application and cancellation of provisional registration due to non-compliance

The relevant legal framework involves sections 12A, 12AB, and 12AB(1)(b)(i) of the Income Tax Act, 1961, which govern the registration of trusts and institutions for exemption purposes. Section 12AB requires the assessing authority to be satisfied about the genuineness of the activities of the trust and compliance with applicable laws before granting registration. The authority is empowered to issue notices seeking information and clarifications, and non-compliance can lead to rejection or cancellation of registration.

The CIT(Exemption) issued notices through the ITBA portal requesting the assessee to upload clarifications and furnish details by specified deadlines. Despite multiple opportunities, including a show-cause notice and a final chance, the assessee failed to comply. The CIT(E) observed that without the required information, it was impossible to conclude on the genuineness of activities or compliance with other laws material to achieving the trust's objects. The CIT(E) noted that the assessee appeared to lack supporting documents or evidence, thus failing to satisfy the provisions of section 12AB(1)(b)(i).

The Tribunal noted that the rejection and cancellation were based on consistent non-compliance with statutory requirements, which is a valid ground under the Act. The authority's interpretation that absence of compliance precludes satisfaction about genuineness and compliance is consistent with the legislative intent to ensure only bona fide trusts receive registration.

Competing arguments included the assessee's claim of inadvertent failure due to an employee's mistake. However, the Tribunal emphasized the importance of compliance with statutory notices and the consequences of non-compliance.

The conclusion on this issue was that the rejection and cancellation were legally sustainable in the absence of compliance.

Issue 2: Eligibility of the assessee as a religious trust for registration under section 12A(1)(ac)(iii)

The assessee contended that it was a religious trust established primarily to maintain an old temple dedicated to Lord Khandoba and was exclusively engaged in religious activities. It argued that these facts entitled it to registration under clause (iii) of section 12A(1)(ac).

The Tribunal acknowledged the nature of the trust's activities as religious. However, it underscored that registration under section 12A is contingent not only on the nature of activities but also on compliance with procedural requirements, including furnishing requisite details and documents to establish genuineness and compliance with other laws.

The CIT(E) had found that due to non-compliance, it was not possible to verify the genuineness of the activities or adherence to other legal requirements. The Tribunal did not dispute the religious character of the trust but emphasized that such character alone does not obviate the need for compliance.

The assessee's request for restoration of the matter for reconsideration was based on the premise that it could substantiate its case if given an opportunity. The Tribunal found merit in this submission, given the nature of the trust and the possibility of inadvertent non-compliance.

The conclusion was that while the religious nature of the trust supports eligibility for registration, procedural compliance remains a prerequisite, and the assessee should be afforded a final opportunity to comply.

Issue 3: Applicability of section 12A(1)(ac)(vi)(A) regarding commencement of activities prior to provisional registration

The CIT(E) observed that the trust had obtained provisional registration on 01/04/2024 but its activities had commenced much earlier. Consequently, the provisions of section 12A(1)(ac)(vi)(A), which presumably relate to provisional registration conditions, were deemed inapplicable.

The Tribunal noted this observation but did not elaborate extensively on this point. The issue was treated as a subsidiary ground supporting the cancellation of provisional registration.

The legal interpretation is that provisional registration under section 12AB is subject to conditions, including the timing of commencement of activities. If activities predate provisional registration, certain provisions may not apply, potentially affecting the validity of provisional registration.

The conclusion was that this factor further justified the cancellation of provisional registration, subject to reconsideration upon compliance.

Issue 4: Restoration of the matter to CIT(Exemption) for reconsideration and final opportunity to comply

Given the facts that the assessee failed to comply due to an alleged employee mistake and expressed willingness to furnish the required details, the Tribunal exercised its discretion in the interest of justice.

The Tribunal directed restoration of the issue to the CIT(Exemption) with a clear mandate to grant one final opportunity to the assessee to submit the requisite details. It emphasized that the assessee must comply on the appointed date without seeking adjournments, failing which the CIT(E) would be free to pass an appropriate order in accordance with law.

This approach balances the need for strict compliance with procedural fairness, allowing the assessee a last chance to establish its eligibility for registration.

The Tribunal's reasoning reflects principles of natural justice and the importance of ensuring that genuine trusts are not unduly penalized for procedural lapses, provided they rectify such lapses promptly.

Significant Holdings

"In absence of the compliance to the above requirement, it is not possible to arrive at any conclusion about the genuineness of activities of the assessee and the compliance to the requirements of any other law for the time being in force by the trust/institution as are material for the purpose of achieving its objects."

"It is clear from the above that the assessee was given sufficient opportunity to comply, but it has not complied to the same. It seems that the assessee is not having any supporting documents / evidence to submit. The assessee has failed to comply with the provisions of section 12AB(1)(b)(i) of the Income Tax Act, 1961."

"Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the CIT(E) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details to his satisfaction and decide the issue as per fact and law."

Core principles established include:

• Compliance with statutory notices under section 12AB is mandatory for registration and continuation of provisional registration.
• Failure to furnish required details precludes the authority from being satisfied about genuineness and compliance, justifying rejection or cancellation.
• The religious nature of a trust supports eligibility but does not exempt it from procedural compliance.
• Tribunal has discretion to restore matters for reconsideration in the interest of justice, granting a final opportunity to comply.

Final determinations:

• The rejection of the registration application and cancellation of provisional registration were legally sustainable due to non-compliance.
• The assessee's claim of being a religious trust was acknowledged but procedural non-compliance was a valid ground for rejection.
• The provisional registration was rightly cancelled due to commencement of activities prior to registration, affecting applicability of relevant provisions.
• The appeal was allowed for statistical purposes by restoring the matter to the CIT(Exemption) with directions to grant a final opportunity to the assessee to comply and substantiate its case.